The board secretary role has gone from being virtually unknown in Mainland China 20 years ago to commanding increasing importance and respect today. This fourth article in our ‘Know your Institute’ series looks at the role that the Hong Kong Institute of Chartered Secretaries has played in the development of the board secretarial profession in Mainland China, and looks at the challenges for both the Institute and the profession in the years ahead.
T he board secretary role was first introduced in A-share companies in the PRC as recently as 1996, but today the value of well-qualified board secretaries is well recognised in the Mainland and experienced practitioners can now command high salaries and enjoy a high status within Mainland companies.
With so recent a history, there are understandably still areas of underdevelopment – the PRC does not have a national board secretarial qualification or a national board secretarial professional body, for example – but the first tentative steps towards these goals have been made.
This article will look at the development of the board secretarial profession over the last two decades in Mainland China, focusing on the role that the HKICS has played in that development, and will look at the challenges facing both the Institute and the profession in the years ahead.
Stage one (1996–2002)
Kenneth Jiang FCIS FCS(PE), Chief Representative of the Institute’s Beijing Representative Office (BRO), divides the development of the profession on the Mainland into four stages. The story starts with the first introduction of the board secretary post in A-share companies in 1996.
‘When I was appointed as the board secretary of First Tractor Company Ltd,’ says Jiang, ‘the concept of the board secretary post was very vague and barely known by most people. It was the H-share training programme in 1998 for chairmen and board secretaries, jointly organised by the China Securities Regulatory Commission (CSRC), Hong Kong Exchanges and Clearing (HKEx) and the Hong Kong Institute of Chartered Secretaries in Hong Kong, that made me understand the corporate secretarial system in Hong Kong and its core duties and responsibilities particularly in terms of corporate governance.’
With this experience in mind, Jiang is well aware of the value of the Institute’s training programmes on the Mainland, both in terms of the practical value for practitioners and in terms of the boost it gives to the Institute’s profile. CPD training has in fact been the cornerstone of the Institute’s strategy in Mainland China.
The first training programmes – held jointly with key stakeholders on the Mainland – were set up in the 1990s when the Institute’s China strategy was the responsibility of its China Affairs Committee (CAC). Dongfang Gumi was recruited as a part-time consultant in 1995 and she helped set up the Institute’s Beijing Representative Office in 1996. She became the Institute’s first Chief Representative of the BRO in that year.
The Institute was eager to promote better knowledge of the board secretary role and the importance of good corporate governance and that strategy dovetailed with that of regulators on both sides of the border. In the 1990s the HKICS started to enter into agreements with stakeholders in the Mainland to jointly provide such training.
Meanwhile, the Mainland was building up its regulatory and legislative infrastructure to support better corporate governance. The Code of Corporate Governance for Listed Companies in China was issued in 2001 and the CSRC’s International Department and Listing Company Supervision Department started to promulgate a clearer definition of the board secretary’s duties and responsibilities in listed companies. This was eventually backed up by the introduction of a statutory requirement in PRC company law for the role to be at the senior manager level in 2005.
Stage two (2003–2006)
The key event in this second period of development was the launch of the Institute’s Affiliated Persons (AP) programme. After consultation with HKEx and Mainland regulators, the Institute officially launched the programme in 2004 and set up its own CPD series designed for APs in the Mainland (The AP ECPD programme). The Institute now has 135 registered APs from H-share companies but also, increasingly, from red-chip and A-share companies.
Dr Gao Wei FCIS FCS(PE), Vice-President of the HKICS, says that the Institute’s AP ECPD programme was one of the main drivers for his decision to seek HKICS membership. He points out that the programme is particularly relevant for board secretaries and related personnel in H-share companies in Mainland China, not only for CPD training but also as a communication platform for all stakeholders.
‘The company I work for, Sinotrans Ltd, is an H-share company listed on the Hong Kong Stock Exchange, which means that I need to abide by the law and listing rules of Hong Kong. Being a member of HKICS provides me with training and communication with market participants and board secretaries of Hong Kong and international leading corporations in order to better perform my duty as a board secretary,’ he says.
Stage three (2007–2011)
In this period the Institute embarked on its promotion of the professionalisation of the board secretarial role. As mentioned at the outset, the PRC does not have a national board secretarial qualification or certification system. The rules and regulations of the Shanghai and Shenzhen stock exchanges restrict the appointment of board secretaries to those attending the training and examinations organised by these stock exchanges, but the Institute believes that Mainland China would profit from having a national board secretarial qualification to provide a quality assurance system for board secretaries.
While it is too early to say what form any eventual board secretary qualification system will take, the Institute seeks ‘mutual recognition’ of appropriate professional qualifications attained in Mainland China or Hong Kong. The Institute believes that the Chartered Secretarial qualification can be one of the qualifications pertinent to the appointment of the board secretary for Mainland China listed issuers in the long term.
In 2007, an examination centre was set up in Beijing and the Institute started to recruit students from H-share companies. The Institute currently has 151 registered mainland students and 13 graduates via its IQS examinations. Dr Gao was one of the first Mainland China-based members to gain HKICS membership via the IQS exams.
‘The IQS provides the necessary expertise board secretaries need to acquire to fulfil their obligations,’ he says. ‘You need to master this knowledge whether you take the exam or not, but I found that the IQS helped me to understand the concepts of corporate governance better and to know how our global peers run their companies. This is an international profession and, through the HKICS, board secretaries in Mainland China can learn about the corporate secretarial profession globally. Although different markets have different features, the basic logic of corporate governance is the same. Corporate governance lays down the rules of the game and Chinese enterprises need to learn these rules during their internationalisation.’
In this period the Institute also revised its Mainland affairs structure. In 2008 it dissolved its China Affairs Committee and incorporated its work into the work of its three principal Committees:
• the Professional Development Committee is responsible for CPD training and research reports
• the Membership Committee is responsible for the admission of APs, and
• the Education Committee is responsible for studentship admission and the IQS examinations in Mainland China.
The Institute also set up its Mainland China Focus Group to implement the initiatives set by Council and to coordinate the Institute’s Mainland work. Members of the Group are: Edith Shih FCIS FCS(PE), (Convener); Jack Chow FCIS FCS; Dr Gao Wei FCIS FCS; Maurice Ngai FCIS FCS(PE); Ivan Tam FCIS FCS; and Yao Jun FCIS FCS.
Stage four (2012 to the present)
The key event in this current phase of development of the board secretarial profession was the creation of China’s first national self-regulatory organisation for board secretaries in July 2013. Kenneth Jiang believes that the launch of the China Association for Public Companies (CAPCO) Professional Committee of the Board Secretary may represent China’s first step towards the professionalisation of the board secretary position in China.
Another key development was the publication of the Institute’s research report – Guidelines on Practices of Inside Information Disclosure of A+H Companies. ‘This was the first time we organised board secretaries of H-share companies to sum up our experiences and write a guideline on compliance with domestic laws and the laws of Hong Kong,’ says Dr Gao, who played a central role in writing the Guidelines.
He adds that the disclosure of pricesensitive information (PSI) has become a major compliance challenge for H-share and A-share companies in the Mainland. In particular, the implementation of the revised Securities and Futures Ordinance in Hong Kong in January 2013 brought in new and complex requirements regarding the disclosure of PSI. The Guidelines attempt to clarify the appropriate compliance best practices since the requirements regarding PSI disclosure in Hong Kong and China are not identical.
‘Although the regulatory purposes of the two laws are almost the same, the specific regulations of the two laws are quite different, which makes it more difficult for H-share companies and the A+Hshare companies on the Mainland to deal with compliance work. I hope that the Guidelines can provide help with this compliance work and I also hope that in the future we can do more work in this field to support Chinese enterprises to abide by foreign laws and internationalise successfully,’ says Dr Gao.
This article has traced the evolution of the board secretarial profession over the last two decades in China, but what challenges will it face in the future? Kenneth Jiang points out that many key trends in the corporate and regulatory environment in the Mainland bode well for board secretaries. These include:
• the impact of deregulatory reform
• the ongoing reform of state-owned enterprises and the development of ‘mixed-ownership’ enterprises
• the continuing trend for increasing numbers of Mainland companies to seek listings overseas, and
• the professionalisation of the board secretary role.
‘As the fast-growing Mainland capital market continues to converge with its international counterparts, the need for corporate governance professionals with international perspectives keeps growing,’ says Jiang.
Dr Gao points out, however, that there are challenges ahead. ‘Board secretaries enjoy a high status in the PRC as they are by law part of senior management, but they make less of a contribution than expected to corporate governance. I anticipate that, with the development of the capital market in Mainland China and the improvement of the level of internationalisation, the board secretarial profession will have an increasing social influence.’
Both Jiang and Dr Gao believe that the Institute will continue to play an important role in the development of the profession in China. ‘The Institute will further strengthen its student recruitment to a wider group, including red-ship companies, to-be-listed companies, A-share companies and multinational companies. It will also further strengthen services to its Mainland students so as to enlarge the member pool and boost its professional influence in Mainland China,’ says Jiang.
Look out for the concluding article in this series in next month’s journal (December 2014 edition).